Time to reform (and renew) the WTO

Reflect and appreciate

The window to enjoy the bountiful cherry blossoms in the Washington DC area briefly opens and closes every spring. It would be easy to take them for granted. The show is a fleeting, but a reliable harbinger of spring renewal. Cherry blossom trees have proliferated such that one need not venture to the famous Tidal Basin to enjoy them.

If we find the trade angle in everything, as we are prone to do here at TradeVistas, one could liken the World Trade Organization (WTO) reform process to the Japanese ritual of hanami (flower viewing), where everyone takes pause to appreciate the gift of the sakura cherry blossoms as a community. The current global trading system has generated opportunities for every member to pursue growth and prosperity through increased trade. That’s beautiful and impressive, too. We’ve come to rely on it and rarely stop to appreciate it. As evidenced by the results of our July 2020 poll, the public has very little understanding of the institution’s role.

For the Japanese, the cherry blossoms represent both a recognition of the impermanence of good things, but also renewal and optimism. Viewing parties are organized to lie under the blossoms, stare at the sky, and reflect on whatever calls to mind.

Free trade is not inevitable

In his book, The World America Made, scholar Robert Kagan makes the case there is nothing inevitable about either democracy or the prevalence of the global free trade system. World orders are transient. They reflect the beliefs and interests of its strongest powers. History tells us this state is indeed reversible. It can be undone. As Kagan says, “The better idea doesn’t have to win because it’s the better idea. It requires great powers to champion it.”

While the WTO was sown from the seeds of democratic, free-market ideals, WTO members have been unable to cultivate trade deals to counter China’s state-directed economic approach. The WTO’s detractors are free to plant doubts that, left untended, will grow like weeds.

Over the last year, WTO members have initiated serious discussions about how to reform the WTO. But now the organization must choose a new director general, adding a new layer of complexity to the process. Looking ahead at the future of the WTO, perhaps “renew” would be a better term to inspire a renewed appreciation for what global trade agreements have achieved, a renewed communal commitment to its future, and a renewed vision to match that of its founders.

There are at least three areas under discussion by members to renew the purpose and functioning of the WTO.

Fix what’s wrong

Achieving transparency through timely and meaningful notifications is an important function of WTO committees. Members have an obligation to share information about regulations, policies, and other measures that affect market access for companies seeking to do business in those markets. In the case of subsidies, those measures can affect the volume and prices of commodities trade globally, affecting businesses who may even be selling primarily in their home market. But many WTO members are years behind in reporting and offer incomplete or unverifiable information, which denigrates the integrity of the process and causes other members to query whether WTO violations are being obscured. Some members are so frustrated with this delinquency they are suggesting penalties for failure to meet notification requirements, even creating an “inactive member status” in the most egregious cases.

Another core function of the WTO is to promote the resolution of disputes among members, including through the WTO dispute settlement system. The United States and other members are concerned that the Appellate Body, which can review decisions made by regular dispute settlement panels, has created rights and obligations not agreed by the members through the process of negotiation. The system in now a quarter of a century old. Experience with it offers insights into procedures that can and should be improved as an investment in the system.

Concede that consensus is stifling innovation

WTO members can self-declare as “developed” or “developing” for the purpose of undertaking commitments or availing themselves of exceptions. Despite the underlying validity of acknowledging different levels of capacity or differing economic priorities, this loosey-goosey system has tilted negotiations to focus on what members won’t do, rather than what they commit to do. The United States has called it a self-declared state of paralysis.

Discussions in the WTO are beginning to focus on various data points that can be used to determine who is developed versus developing, but even those exercises might miss the larger point that lowering barriers in a country’s own market will generate economic gains worth pursuing. Take one example: opening one’s market to competition in the provision of telecommunications services creates opportunities to extend broadband access and leverage faster internet connections so that companies can be “born digital” and find their niche in global supply chains. The tendency to opt-out of liberalization commitments can conversely hold countries back in their development pursuits. There’s a philosophical disagreement here that could get glossed over as members dive into data and formulas.

The Doha Round of negotiations collapsed in part due to insistence on a “single undertaking” – that every aspect of a large package deal must be agreed before any single aspect could be agreed and implemented. Members did free an agreement to streamline customs procedures from this consensus capture. On the topic of agriculture, members agreed to move ahead with the elimination of agricultural export subsidies and adopt new disciplines on export credits, international food aid and agricultural exporting state trading enterprises absent a larger deal.

Incrementalism should be welcomed over inaction. Members are now offering papers describing how new negotiations could create agreements among interested members to begin with, with eventual agreement by some or all members. This approach will probably need to apply to the WTO “reform” process itself, with some down payments made and problems fixed without holding up progress.

Negotiate on issues relevant to today’s economy

In the same vein, willing members should be unencumbered to move ahead with negotiations on “new” issues relevant to today’s economy. For example, the United States, European Union, and Japan announced they would cooperate to develop new rules to address the practices of forced technology transfer and industrial subsidies. A significant subset of WTO members have agreed on the need to facilitate growth of the digital economy in part by ensuring that electronic commerce can flourish. They will begin negotiations and work to bring along other members as talks advance.

What role will the US play?

Questions remain about what role the United States will play in this process of renewal. In spring 2020, the US Congress faced the possibility of a vote – the first since 2005 – on whether the United States should withdraw from the WTO, a body it helped create.

While that vote was eventually scuttled, it amplified growing criticism of the WTO by the Trump Administration – and the general public’s indifference toward the institution. A July 2020 TradeVistas poll found that more Americans either support leaving the WTO or feel “indifferent” or “unsure” about whether to withdraw.

The poll also found that Americans overwhelmingly want the United States to be “leader of the global economy”. They just don’t see membership in the WTO as critical to that goal. But – once they receive some basic information about the WTO’s role, many Americans also see how the organization can benefit US companies.

These results make it clear that trade policymakers should position the WTO’s role more prominently in Americans’ understanding.

The petals will fly off

The cherry blossoms are impermanent. A strong gust of wind will force them off their branches just at their peak. The leaves fill out, the trees grow, and the blossoms seem to reappear as vibrant as ever the following year. Some trees can survive a century but most cherry blossom species live just 15 to 20 years. New seeds must be planted and the trees cared for. We’ve already lost nearly a generation of progress in the WTO. Now seems as good a time as any for reflection and renewal.

Editor’s Note: This post was originally published in April 2019 and has been updated for accuracy and comprehensiveness. 

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